Time flies. It has been seven years since I had started this blog.
For some new investors, these seven years felt like a lifetime, or rather, a full oscillation of the market and economic cycle (or a few, depending on how one sees it). If they had remained sane after this period, then congratulations to them, for their next few chapters of their investing life would be something like this.
These seven years had also seen a few unprecedented events that could be described as black swans (or grey swans as some might put it), such as the COVID-19 pandemic, inflation, interest rates, etc. We also have had minor happenings, good or bad, like the rise and fall (so far) of cryptocurrencies, the rise and rise (so far) of artificial intelligence, the rise and rising trend of green and electric vehicles, etc.
For this post, however, I would not be delving further on the general market and economy, and the fads and trends. Instead, I will focus on something that is practical and may be useful to your own investment journey.
Formalising Your Portfolio Multiverse
If you had initiated your financial and investment plans (i.e., investment portfolio, having CPF contributions, adequate savings and insurance cover, etc.), and followed diligently for the past seven years (and not making any glaring financial mistakes), chances are you would have accumulated at least a low six-figure sum spread across your savings, investment portfolio(s) and CPF (across all accounts).
This conclusion was not plucked from the air; assuming an average starting pay of SGD 1975 for an ITE graduate who started work on the first day of 20161, and with a 5% pay increment every year, 10% savings rate, 20% investing rate with a 5% annual return, 20% + 16% CPF contributions with an averaged 3% yearly rate, by end 2022, this person would have around SGD 131K2. Extending this to polytechnic (SGD 2400 average starting pay) and university graduates (SGD 3375 average starting pay) of the same year’s cohort, the final figure is about SGD 160K and almost 225K, respectively.
By this stage, it is probably time, in my opinion, to have a holistic view of the finances since they had built-up to substantial amounts. It is common for people to still view them separately as silos, which is natural due to mental accounting bias. If one knows how to use it, mental accounting bias is a good thing, which is the basis for my portfolio multiverse concept.
We all know the power of compounding especially through income investing, but most of us tend to think of it happening within a portfolio, or one universe as I would put it. In practical terms, I can see my portfolio using my disposal income is compounding at 10%, and my CPF Ordinary Account (CPF-OA) and Special Account (CPF-SA) is earning a 2.5% and 4.01% interest rate respectively. What if I could take a portion of the 10% returns and plough it into my CPF-OA and CPF-SA, for which the latter to quickly reach the prevailing full retirement sum? In this way we are traversing the various universes of our overall financial and investment portfolio, yet in each universe the laws of it are not the same. In other words, these portfolios are different, but they still work for you as a whole, just that each of them has different rules. To summarise: differentiate, then integrate (no, this is not calculus).
Besides the disposable income portfolio and CPF, one could venture further into other portfolio universes. One common way would be through the Supplementary Retirement Scheme, appealing to those who wants to have tax savings. For those who have skills and/or assets at hand could make use of these to do side hustles or leasing/renting out of assets like property.
If you are a hands-on investor (i.e., active or active-passive, like myself), you could manage the cashflows across the portfolios to optimize your overall multiverse. If you prefer lesser hands-on (i.e., passive or passive-active), you may just let the portfolio go, rebalance individual and across the portfolios on a periodic basis.
1 – Starting salaries of graduates. Parliamentary replies. Ministry of Education. 10 Sep 2018. https://www.moe.gov.sg/news/parliamentary-replies/20180910-starting-salaries-of-graduates (accessed 30 July 2023). Pay of SGD 1975 was derived by averaging the 2016 median gross salaries between public (SGD 2150) and private (SGD 1800) of an ITE graduate. Same goes for polytechnic (average of SGD 2600 public and SGD 2200 private) and university graduates (SGD 3550 public and SGD 3200 private).
2 – Calculation of investment returns and CPF interest rates are done on an annual basis for simplicity.